Reference no: EM132493057

Point 1: The accountant at Summerhill Traders was on sick leave during the month of September 20.7. Her assistant, who has limited accounting knowledge, prepared the trade receivables control account below. She has given you the following financial information for the month of September 20.7 and requested your help in identifying and rectifying her mistakes.

Point 2: Dr Trade receivables control B5 Cr 20.7 R 20.7 R Sept 30 Sales and VAT output SJ9 12 600 Sept 30 Balance Bank b/d CRJ9 15 900 9 130 Balance c/d 18 030 Sales returns and VAT input SRJ9 5 600 30 630 30 630 20.7 Oct 1 Balance b/d 18 480

Additional information: In addition to the errors made in the trade receivables control account above, you have listed the following errors and omissions made by the assistant:

• Interest was charged on Mrs A Naidoo, a debtor, who owed Summerhill Traders R2 000. Her account was overdue by six months. Interest is charged at 12% per annum on the overdue account.
• The trade receivables control column and the settlement discount granted column in the cash receipts journal had totals of R9 130 and R450 respectively.
• Mr R Nyathi, a cash client of Summerhill Traders, returned goods to the value of R500 to Summerhill Traders. This transaction was recorded in the sales returns journal.
• Miss T Luna's attorneys declared a dividend of 30c in the rand from her insolvent estate. Miss T Luna owed Summerhill Traders R1 000 on 1 September 20.7. Her outstanding debt must be written off as irrecoverable.
• The sales journal was undercast by R100.
• Mr Y Smith's cheque of R1 500 was dishonoured by the bank, due to insufficient funds in his account.
• The trade receivables control account had a debit balance of R15 900 at 31 August 20.7.
• Mrs K Singh's account of R150 was written off as irrecoverable on 30 August 20.7. She paid Summerhill Traders R150 on 1 September 20.7.

Question 1: What will be the general ledger entries for the interest charged on Miss A Naidoo's overdue account?

1) The trade receivables control account in the general ledger will be debited with R120 and the interest income account in the general ledger will be credited with R120.

(2) The trade receivables control account in the general ledger will be debited with R240 and the interest income account in the general ledger will be credited with R240. (3) The interest income account in the general ledger will be debited with R120 and the trade receivables control account in the general ledger will be credited with R120.

(4) The interest income account in the general ledger will be debited with R240 and the trade receivables control account in the general ledger will be credited with R240.

(5) The trade payables control account in the general ledger will be debited with R240 and the interest income account in the general ledger will be credited with R240.